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  • Writer's pictureConvergent Financial Group

The Money Checklist: Phase 2


The Money Checklist by Convergent Financial Group logo

Last week we walked through the steps in Phase 1 and this week we'll be moving on to Phase 2. Hopefully you've been able to check off at least a few items from phase 1. Even if you're still working through the first phase, keep reading... this post will give you insight into where you are headed and what your next steps will be. 


Phase 2 - Debt, Retirement, & College


hand holding credit cards

First, I encourage you to start this phase with debt reduction for all non-mortgage debt that does not have a relatively low interest rate. My view on debt may be a little different than the majority. I believe that if you can still meet your savings goals and keep up with debt payments, then there is no need to put all of your focus on debt reduction. To clarify, this principle does not apply to any high-interest debt like credit cards, so if you are carrying a balance on credit cards, paying those off is definitely a priority. But, if you have reasonable interest rates on car loans or student debt, for example, then carrying those debt payments as part of your living expense total is reasonable in my professional opinion. The goal is to eliminate all non-mortgage or high-interest debt in this phase.


  • ! A word of caution about paying off debt ! the unexpected risk of eliminating debt that I see in my practice is that once we pay the debt off, we tend to start spending the former debt payments on lifestyle. When we satisfy a debt and are no longer making those payments, it feels like we suddenly have a cash infusion, so the temptation is to spend that cash. Yes, a goal of debt reduction is to eliminate the interest you’re paying, but more importantly, it is to free up cash to be used toward other goals… not just thoughtless spending. Once you start frivolously spending the “extra” cash, it is difficult to rewind and reallocate without feeling like you’re experiencing a reduction in lifestyle. So, before you jump into the frivolous spend without thought, I suggest having a plan in place before your debt is paid off so that you will simply re-allocate those debt payments elsewhere when you’ve satisfied the debt. Part of that plan could include some reward or celebratory spend. In fact, I actually believe that some reward spending can go a long way in keeping us on track to meeting our goals in the long run. My point is that we must be intentional about how we will re-allocate the money once the debt is satisfied by planning in advance.

senior couple at open air market holding baskets of vegetables and fruits

Second, focus on your retirement savings. The easiest and most sustainable way to save for retirement is through your 401K plan. Statistics show that automating savings leads to goal achievement the fastest, so have your employer deduct contributions before they hit your checking account. Then, it becomes easier to focus on other items in your plan. In general, I tell my clients to focus on increasing their 401K savings until they hit the maximum allowed. For almost everyone, max funding your 401K is going to get you pretty close to meeting your retirement goals.



old university with pool

The third area of focus in phase two can be a little trickier… college planning. Ideally, saving for college should be done after meeting your retirement goals. However, in reality I have found that many people are unwilling to forego college saving for retirement saving for various reasons. Whether that reason is their concern about their children taking on too much debt or something else is irrelevant. As an advisor, I have learned to give my best advice within the parameters of what people are willing to do... this is one of those concessionary points. That said, I would then encourage you to start saving for your children's college expenses as soon as you can. My general recommendation is that you take 50% of what you want to save for this goal and place it into a 529 plan. The other 50% can be invested any way you or your trusted advisor see fit. (Check out this blog article for more of my thoughts and advice regarding the true cost of college.)


That wraps up Phase 2, Debt, Retirement, & College. This is the official checklist:

phase 2 checklist

Now head on over to the final post, Phase 3, True Wealth Creation, which includes a downloadable pdf checklist covering Phases 1-3. In the meantime, email me with your questions as you work through the list or schedule a meeting with me here.



Jeremy's signature

P.S. If you missed Phase 1, Operational Setup, be sure to go back and get caught up here.




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